Questions and Insights for Board Consideration in Q3 2024

Areas Boards Should Be Considering for the Remainder of 2024 and Into 2025

The 4^th quarter will be supercharged with events and emerging trends that boards need to consider as 2024 comes to a close and we begin navigating into 2025. Our Weaver team of professionals has developed the following key topics to incorporate into your board meeting agendas to help stay on top of corporate strategy and emerging risks.

1. What does the Fed’s 50 basis point rate cut really signal and what should boards know about how its impact?

While many welcomed the Fed’s 50 basis point rate cut on September 18, this represents an aggressive move that may signal weakness in the economy. Slashing borrowing cost underscores the Fed’s commitment to maintaining economic momentum and prioritizing growth over inflation. In light of the rate cut, boards should be keenly aware of certain key factors that could impact the company’s risk and strategy:

• With lower rates, is there opportunity to refinance or renegotiate existing debt and improve cash flow?
• Will lower rates impact consumer demand for the company’s products or services?
• Should the strategy change in light of a lower cost of capital? For those in the financial services sector, lower rates can squeeze net interest margins, impacting profitability, which requires boards to closely monitor the effects on earnings models.
• As rate cuts often lead to a weaker U.S. dollar, should boards evaluate the impact on imports/exports and any related hedging strategies used to mitigate risk?
• Has the board considered short-term market volatility and potential disruptions in capital markets in planning and risk management strategies?
• Does the board need to communicate with investors, employees and other stakeholders about the impact and response to the rate cut?
• If the company is pursuing or plans to pursue an acquisition strategy, will lower rates increase the competition for deals as private equity comes off the sidelines?
• Will lower interest rates create an improved environment for strategic disposals?
• Given the lag between rate cut and response in the economy, are further reductions expected and should that impact the timing of corporate decisions?

2. What should boards be asking the C-suite about evaluating and responding to risk from the outcome of the 2024 election cycle?

As the 2024 election cycle unfolds, businesses are navigating a landscape filled with uncertainty. This environment presents not only potential risks but opportunities. For boards and the C-suite, it is crucial to stay ahead of the curve, embracing a proactive and agile approach to risk management. The C-suite must be prepared to respond swiftly to changing political, regulatory and economic dynamics that could reshape the business environment overnight. By asking the right questions and leveraging innovative strategies, boards can ensure their organizations remain resilient, focused and ready to thrive no matter what the election outcome brings. Here are the key questions boards should be asking to ensure they are strategically positioned to tackle these challenges:

• Has the board and C-suite outlined and discussed strategies based on potential election outcomes and identified risks, risk responses and opportunities for growth?
• Is there opportunity to enhance the company’s brand with the changing political landscape?
• Has the company assessed whether technology and cyber threats could escalate during election season and beyond?
• Are emergency response plans up-to-date and have these been recently tested?
• Has the C-suite assessed the impact and response to the workforce based on local and national election outcomes?
• Have ESG initiatives been discussed that not only mitigate risk but also assess the impact of potential policy shifts?
• Has the C-suite developed a communication strategy to its stakeholders depending on election outcomes?

3. For companies considering an Enterprise Resource Planning (ERP) or other major system implementation, what questions should boards be asking about the budget, product and implementor selections, implementation process and integration?

ERP and other major system implementations are huge investments that can totally transform how a business operates. With these types of investments, challenging questions must be asked, especially when it comes to budget, vendor selections for both the product and the implementor, implementation process and ensuring a smooth integration. In addition, a major implementation extends beyond the software to include organizational and process change management. With the right questions, the board can steer an ERP or major system implementation to success. Here are some key questions to ask to ensure the investment aligns with the organization’s strategy:

• Budget/cost containment
  • What is the total estimated cost of the implementation, including software, hardware and consulting fees for the implementor, customizations and integrations? Are there any hidden or variable costs?
  • What is the expected return on investment (ROI) and over what time period?
  • How does the budget compare with industry standards and peers?
  • What are the expected costs for training, renewal and maintenance (long-term support)?
• Vendor selection and compatibility
  • How does the chosen ERP or other system align with our business goals and processes? What are the system’s scalability and flexibility to adapt to future business needs?
  • What are the key features and functionalities of the ERP system? What features and capabilities are not being implemented?
  • What is the make-up of the selection committee?
  • Have we done due diligence to evaluate multiple vendors and verified stability, customer satisfaction and support?
• Implementor selection
  • What is the implementors track record with similar projects in our industry?
  • What are the qualifications and experience of the implementation team and project champion?
  • How will the implementor ensure knowledge transfer to our internal team?
  • What are the terms of the contract with the implementor, including service level agreements (SLAs)?
• Implementation
  • What is the detailed project plan, timeline, milestones and deliverables for the implementation?
  • How will project risks, including budgetary risks, be identified and managed?
  • What is the communication plan for keeping stakeholders informed? How will project risks be identified and managed?
  • How will change management be handled to ensure user adoption? Is there user buy-in and are key individuals on the implementation team?
• Integration
  • How will the ERP system integrate with our existing systems and processes?
  • What data migration strategies will be employed?
  • How will data integrity and security be maintained during and after the integration?
  • What are the plans for testing and validating the integration?

4. What should boards know about the results of the PCAOB’s “2023 Conversations with Audit Committee Chairs?”

Issued in June 2024, the PCAOB released its “2023 Conversations with Audit Committee Chairs” report, which provides important insights boards should know to keep the audit process strong. The PCAOB spoke with 230 audit committee chairs in completing the report. The insights presented remind boards and audit committees that a good audit is not just about checking the boxes—it is about proactive communication, staying ahead of risks, embracing innovation and ensuring high standards at every phase. Here is what stood out from the conversations:

• Focus on quality: Audit quality matters! The conversations emphasized how important it is for auditors to keep improving and being transparent about any challenges they face. Boards should ensure the communication with auditors is clear, open and ongoing. The responses indicate that audit committee chairs believe they are spending sufficient time discussing critical audit matters (CAMs).
• Spotting emerging risks: Risks, like cybersecurity threats, ESG concerns and economic shifts, are constantly evolving. It is crucial that boards are proactive, ensuring risks are being identified and managed properly during audits.
• Guarding independence: Independence is not just a buzzword—it is a must. Boards need to be vigilant to ensure that auditors stay objective and are not compromised, especially when they provide other services beyond the audit.
• ESG and sustainability on the radar: Investors are paying close attention to how companies report their ESG efforts. Audit committees should be actively involved in making sure these reports are accurate, reliable and meet rising expectations.
• Embracing tech and data: Technology, like data analytics, is transforming audits, making them smarter and more efficient. Boards should ask their auditors how they are using these cutting-edge tools to improve the audit process.
• Building trusted relationships: A great audit depends on objective relationships between the audit committee and the auditors. Regular, candid conversations help address issues early, ensuring the audit stays on track.
• Keeping up with regulations: The audit world is constantly changing, with new regulations and higher expectations. Boards need to stay informed and make sure audit practices are keeping up with the latest standards.
• Talent matters: The skills and experience of the audit team are critical. Boards should ask about the qualifications of the auditors and what the firm is doing to attract and keep top talent.

The PCAOB report can be accessed here: PCAOB’s Conversations with Audit Committee Chairs

5. What should boards understand about the CrowdStrike incident and what should the C-suite be doing?

The CrowdStrike business interruption incident involved a faulty software update pushed out by the CrowdStrike platform and causing a widespread system crash of millions of Windows computers. This effectively rendered the computers unusable due the a “Blue Screen of Death” loop and disrupted critical services including airlines, airports, banks, hospitals and more. Boards should be asking the following questions about the strength of the company’s IT control environment:

• Is there a dependency on a single IT vendor that creates a vulnerability if a major outage occurs?
• Has management evaluated third-party and fourth-party risks and determined the impact and response plans should these vendors have outages?
• Is there robust testing of software updates?
• Have business continuity plans and backups been tested to mitigate the risk of disruptions caused by third-party outages?
• Are updates implemented in stages with controlled rollouts to identify and address potential issues before full deployment?
• Has the organization reviewed the adequacy of its cyber and disruption insurance coverage?

Weaver offers information and insights to help you ask the right questions and determine appropriate plans of action based on topics and trends as they unfold. Subscribe to our monthly insights for articles and information to help you review your organization’s operations and prepare for change in an uncertain world. Contact us for information about these areas of Board governance.

©2024

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